A group of pension funds, unions and asset managers in the US, the UK and Europe is urging Lyft’s board to scrap a proposed dual-class share structure, as the ride-hailing company prepares to pitch its initial public offering to investors next week.
Lyft revealed plans to create a new class of shares carrying 20 votes each in regulatory filings this month. That will give its founders, Logan Green and John Zimmer, voting power that will exceed the roughly 7 per cent of the company they collectively own ahead of the IPO.
The investment groups said Lyft should stick with its single class of shares with one vote each when it debuts on the Nasdaq exchange later this month, according to a letter they sent to directors last week. Failing that, they said, the company should adopt a “sunset” provision to phase out the extra voting rights within seven years.
“Lyft is imposing unnecessary and uncompensated investment risk on potential shareholders both by switching to a dual-class structure and by failing to commit to one-share, one-vote by a certain date,” the letter said.
The letter was signed by investors with $3.2tn in assets, including the UK’s Local Authority Pension Fund Forum, BNP Paribas Asset Management, pension funds representing public employees in New York, Los Angeles, Chicago and Ohio, the Teamsters union and United Auto Workers retirees.
“With a dual-class structure, Lyft is basically shielding itself and company insiders against shareholders who deserve a voice. Outsized control among an unaccountable few is an unnecessary risk — and Lyft should go back to the drawing board,” said Scott Stringer, New York City comptroller, who oversees the city’s pension funds.
Lyft declined to comment.
Under the structure outlined in its IPO prospectus, its founders’ voting power will be less than 50 per cent, according to a person familiar with the discussions.
The supervoting class B shares held by Mr Green and Mr Zimmer would convert to regular shares if their collective class B holdings fall below 20 per cent of their stakes at the time of the IPO. The company has taken other steps to shore up governance including installing an independent board chair.
Mr Green and Mr Zimmer are expected to begin making their case to investors this week as Lyft launches its IPO roadshow. The company, which has rushed to reach public markets before its larger rival Uber, will emphasise its rapid revenue growth and market share gains. Sales doubled to $2bn last year and the number of people who have taken a ride in the last quarter has risen almost sixfold since 2016.
The company’s capital structure plans would make it the latest technology company to go public with classes of supervoting rights that concentrate control with their founders, following in the footsteps of Alphabet, Facebook and Snap, rather than the one share, one vote structure of the majority of publicly traded companies.
Advocates say giving founders more control helps insulate them from activist attacks and focus on long-term goals.
But many pension funds and other big institutional investors have pushed back against dual classes, which they say limit their rights as owners. Large index providers including S&P Dow Jones Indices have tightened their rules to exclude companies with multiple share classes.
“The sense was some progress had been made in addressing our concerns, and now Lyft’s IPO is threatening to reverse that,” said Richard Clayton, research director at CtW Investment Group, which represents union pension funds and organised the letter.
CtW pointed to several companies that went public in the past year with dual class structures and adopted time-based sunset clauses, including Bloom Energy, EVO Payments and Smartsheet.
Snap’s structure was considered particularly egregious, as it sold shares with zero voting rights in its IPO, giving co-founders Evan Spiegel and Bobby Murphy 97 per cent of votes. At Facebook, chief executive Mark Zuckerberg controls 60 per cent of votes despite owning just 14 per cent of the company.
The Council of Institutional Investors, which represents asset managers including BlackRock and T Rowe Price, has also lobbied Lyft’s board to adopt a sunset clause.